5/11/2007 @ 5:39PM

Will 'Ocean' Kick-Start Helio?

Can building a new, exclusive cellphone from scratch help upstart mobile-phone operator Helio stand out in the highly competitive wireless industry?

On Friday, Helio–which is owned by U.S. Internet service provider
EarthLink
and Korean wireless giant SK Telecom–started selling Ocean, a new cellphone with a unique case design, two slide-out keypads, a big, bright screen and a user interface that beats many of its competitors.

The phone’s dual sliding keypad design is nifty: Slide out a standard number pad from its heel for dialing, or a large, QWERTY keypad from its left side for text messaging or speedy Web browsing. Ocean’s software effortlessly switches the display from portrait to landscape mode, depending on which keypad is in use.

The design addresses complaints that the buttons are too small and too close together on QWERTY smart phones like Palm‘s
Treo or Research in Motion‘s
BlackBerry. It also avoids the multi-touch text system that requires some phone users to press a single key multiple times to write a single letter, or the need for flawed, predictive-typing systems.

The Ocean is a solid phone for content-hungry consumers. Its user interface is quick and intuitive. It supports an expansion card for “side-loading” media like MP3s and movies. And its fast “third-generation” Internet access is an important feature for an entertainment-focused service like Helio. The company’s mobile Web portal features built-in search tools for
Yahoo!
,
Google
, Wikipedia,
Amazon.com
and mobile review site Yelp.

But Ocean’s most unique feature–which might help Helio the most–is its uniqueness. Because Helio custom-built it with device manufacturer Pantech, it won’t be showing up on shelves at
AT&T
, Verizon Wireless or
Sprint Nextel
stores anytime soon, or ever. So while most carriers compete with pretty much the same lineup of
Motorola
flip phones, Samsung sliders and
Nokia
candybars, Helio can claim its own.

That’s important because one of Helio’s biggest business hurdles as a “virtual” operator–it resells access to Sprint’s network–is competing with the big U.S. wireless giants for exclusive handset, service and content launch deals. With fewer than 100,000 subscribers, it’s nearly impossible for Helio to go up against titans like AT&T and
Verizon Communications
, each with more than 60 million wireless customers.

AT&T exclusively rode the first wave of the success from Motorola’s Razr flip phone, and it will be the only U.S. operator to sell Apple‘s
iPhone when it launches this June. But Helio simply doesn’t have the size for those deals, so a homegrown handset is a solid bet.

The phone won’t solve all of Helio’s problems. Ocean isn’t a sure thing, and the company needs to grow fast to become profitable. Ocean sells for $295 after subsidies, and Helio customers spend, on average, $90 to $100 per month on service. But because Helio is an independent “virtual” operator, it must lure customers away from its larger rivals, whose customers are often on two-year contracts or money-saving family plans.

And starting a phone company–even when you don’t own the towers–is not cheap. Last quarter Helio lost $63 million on $30 million of revenue. Co-owner EarthLink expects to invest another $50 million to $100 million in Helio. But beyond that, Chief Financial Officer Kevin M. Dotts said last month, “subsequent investments would likely be made by third parties.”